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Global Equity Strategy
Make-Cents
MARKET REVIEW
On Wednesday the stock market staged its strongest
rally yet since September 11. Capping a week of better than expected
economic data, the NAPM non-manufacturing diffusion index suggested
that service company activity actually expanded in November, with
a 51.3 reading compared with more modest consensus expectations
of 43.0. That 10:00 A.M. release electrified a market already moving
higher on solid data earlier in the week and encouraging words from
Cisco CEO John Chambers at that company's annual confab the day
earlier. How good was it? The DJIA finished above 10,000 for the
first time since early September, and the Nasdaq closed above 2,000
for the first time since early August. All the major indexes were
up 2% to 4%, and trading curbs were in - to the upside, for the
first time in anyone's memory. The S&P 500 and DJIA each finished
within points of their 200-day
moving averages. The Nasdaq Composite index, up 90, cruised through
its 200-day average early in the session and never looked back.
Volume was very heavy, and technicians tend to like high volume
and wide breadth on strong rally days. The SOX index of semiconductor
companies was at it again, leading the tech sector higher on news
that Asian memory manufacturers have raised chip prices for the
first time in more than a year. Stocks benefiting from the encouraging
level of economic activity - banks, brokers, retailers, automakers,
entertainment conglomerates - were particularly strong. The defensive
stocks favored in prior months - utilities, healthcare - again underperformed,
but there was enough market momentum to lift even these sectors.
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Technical Market Update
Bob Dickey
MANAGING DIRECTOR RESEARCH
for RBC Dain Rauscher Wessels
Gain one day and give back the next could be the
market pattern for the next month or two. We believe the short-term
market has reached a minor peak in terms of sentiment and enthusiasm,
as measured by the volume, the put/call ratio, the VIX, and the
advance-declines. That makes it difficult for the market to extend
the gains of the past two months without first having enough of
a consolidation period, or a pullback, to relieve some of the near-term
overbought condition, in our opinion. The resistance is also heavy
in the 10,200 area of the DJIA and at 2,000 on the Nasdaq. We believe
it would take a clean break above these levels in order for the
markets to break out and extend the gains by a meaningful amount.
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